Annual and Lifetime Allowances

The money you pay into your pension arrangements usually gets tax relief. 

However, there are limits on how much you can save towards your pension before tax will be charged on any excess.
 
 
Annual Allowance = £60,000
The Annual Allowance is the total amount you can pay into all of your pension arrangements each tax year before tax will be charged. Each £1 of annual defined benefit pension built up is treated as £16 for this purpose.

Going over the Annual Allowance
You’ll get a statement from your pension provider telling you if you go above the Annual Allowance and the amount of any excess that will enable you to complete your tax return.

You can carry forward any unused Annual Allowance for up to three years.  

 
Money Purchase Annual Allowance = £10,000
This is the total amount you can pay into any defined contribution pension arrangements (such as the UPP or and AVCs) each tax year before tax will be charged.

The Money Purchase Annual Allowance only comes into effect if you have already taken some of your defined contribution savings as cash or a short-term annuity from a flexi-access drawdown fund, cash from a pension pot (‘uncrystallised funds pension lump sums’) or if you have taken more than the limit from a capped drawdown fund.  

 
Tapered Annual Allowance = between £10,000 and £60,000
Your Annual Allowance will only be tapered if you are a high earner and your ‘adjusted income’ (your taxable income plus your Pension Input Amount) is £260,000 or more and your taxable income is over £200,000.

For every £2 of adjusted income over £260,000, your Annual Allowance reduces by £1 (down to a possible minimum of £10,000).

If your total taxable income is over £200,000, you should check if the Tapered Annual Allowance applies to you.


Lifetime Allowance = £1,073,100
The Lifetime Allowance (LTA) is the maximum amount you can save into all your registered pensions throughout your working life before you have to pay tax. The LTA for the tax year 6 April 2022 to 5 April 2023 was £1,073,100.  The LTA will be fully abolished from the 2024/2025 tax year through a future Finance Bill.

This means that from 6 April 2023 the current lifetime allowance framework remains in place and the lifetime allowance for 2023/2024 remains at £1,073,100. If you receive a benefit in excess of the LTA, during 2023/2024, the LTA charge has been abolished and any excess will be taxed as income at your marginal tax rate.

You can also go to the government website for further details on the Lifetime Allowance. For more information on the Lifetime Allowance charge being abolished, see the policy paper on the government website.

It is your responsibility to monitor how much Annual and Lifetime Allowance you have used and report any excess to His Majesty’s Revenue & Customs (HMRC) using a self-assessment tax return form.

Please note that Annual and Lifetime Allowance limits are subject to change. Visit the government website for more information on your pension tax limits.